1. Step 16: Set Your Pricing Framework

2. Basic Pricing Concepts Five Waves of Customers Workshop
Outline
Overview
Basic Pricing Concepts
Five Waves of Customers
Workshop
January 14, 2019

3. Overview
This step:
Use Quantified Value Proposition and Business Model to determine a first-pass framework for pricing your product
January 14, 2019

4. Overview Pricing Framework
Balance between attracting as much revenue as possible while still attracting as many customers as possible.
January 14, 2019

5. Make estimate of Pricing Framework Ongoing and interactive process
Overview
Make estimate of Pricing Framework
Ongoing and interactive process
Very likely to change (e.g., gasoline, airline tickets)
Goal: use pricing estimate to calculate Lifetime Value of An Acquired Customer and Cost of Customer Acquisition
Use BOTH to determine profitability
January 14, 2019

6. Basic Pricing Concepts Five Waves of Customers Workshop
Outline
Overview
Basic Pricing Concepts
Five Waves of Customers
Workshop
January 14, 2019

7. Basic Pricing Concepts
Cost should NOT be a factor in deciding price
Set price based on value customer gets from product
Do NOT use cost, instead use quantified value proposition
Determine how much value customers gets
Charge some percentage of that (e.g., 20%)
January 14, 2019

8. Basic Pricing Concepts
Use the Decision-Making Unit and Process to Acquire a Paying Customer to identify key price points
E.g., if DMU has $1000 purchasing limit, do NOT charge >$1000
January 14, 2019

9. Basic Pricing Concepts
Understand Prices of Customer’s Alternatives
Based on customer’s perspective!
Products available
How much customer would pay
Include status quo
Very important data to collect!
January 14, 2019

10. Basic Pricing Concepts
Different Types of Customers will Pay Different Prices
Prices should vary depending on customer type (more later)
E.g., discounts for early adopters
E.g., full price for late majority
January 14, 2019

11. Basic Pricing Concepts
Be Flexible with Pricing for Early Testers and “Lighthouse” Customers
Early customers will collaborate to improve product
Lighthouse customers influence others to purcahse
Allow pricing flexibility for both!
Discounted upfront costs
Low-cost trial period
Keep prices confidential
Never give away for free!
January 14, 2019

12. Basic Pricing Concepts
Always easier to drop price than to raise it
Better to price high, offer discounts
.. Than to price too low
January 14, 2019

13. Basic Pricing Concepts Five Waves of Customers Workshop
Outline
Overview
Basic Pricing Concepts
Five Waves of Customers
Workshop
January 14, 2019

14. Five Waves of Customers
Technological Enthusiasts
Early Adopters
Early Majority
Late Majority
Skeptics
January 14, 2019

15. Five Waves of Customers
Technological Enthusiasts
First people to buy product
Love technology, willing to try
Probably sell just one
Will likely pay more
January 14, 2019

16. Five Waves of Customers
Early Adopters
May want to feel like they got a deal
Requires lots of attention and service
Build this into pricing framework!
January 14, 2019

17. Five Waves of Customers
Early Majority
Where you’ll start scaling
This is the price most think of first!
January 14, 2019

18. Five Waves of Customers
Late Majority
Later in process
Like conservative pricing / plans
Take on less risk (product is established)
January 14, 2019

19. Five Waves of Customers
Skeptics / Laggards
Very late to process
E.g., friend who still has flip phone..
January 14, 2019

20. Five Waves of Customers
Technological Enthusiasts
Early Adopters
Early Majority
Late Majority
Skeptics
Consider these waves within pricing framework
January 14, 2019

21. Basic Pricing Concepts Five Waves of Customers Workshop
Outline
Overview
Basic Pricing Concepts
Five Waves of Customers
Workshop
January 14, 2019

22. WORKSHEET: Initial Pricing Framework Six criteria to consider:
Workshop
WORKSHEET: Initial Pricing Framework
Six criteria to consider:
Value Creation (not costs)
Customer Acquisition (DMU)
Nature of Customer (waves)
Strength of Core (pay premium for top talent)
Competition (other options?)
Maturity of Product (new / risky vs. proven / established)
January 14, 2019